Also called a Ponzi scheme. A good pyramid scheme makes money through the increasing payment of membership dues of new members. When the available number of new members dries up, the pyramid crashes, and only the few members that got in on the ground floor come out with substantially more money than they put in. Closely related to Multi-level marketing companies such as Amway and Equinox.
Good examples of pyramid schemes:
- The 'send a dollar' chain letter.
- A series of parties made up of women in Portland, Oregon. Each one would bring $1000 and be added to a list. People at top of the list would get $10,000 each.
- Ponzi's original idea: pitch a fake investment strategy with a big payoff, (50% in 40 days) then pay off the people you owe money to with the money of new investors.
- The United States Government's strategy of paying off its expired treasury bills by issuing new bills.
Although the idea sounds pretty stupid to people who think about it for more than 30 seconds, you shouldn't underestimate its power, or the power of greed. In 1997, Albania's government collapsed because a huge pyramid scheme smashed the country's economy.